HAI-O ENTERPRISE BERHAD (HAIO)

HAI-O ENTERPRISE BERHAD (HAIO) All figures in thousands of Ringgit Malaysia except per share values and ratios Analysis Date: 31/07/2013 Financial Year: 2013 30/04/2013 Latest Quarter: 30/04/2013 Price: 2.75 Stock Category: Turnaround Overview Hai-O Enterprise Berhad engages in wholesaling and retailing herbal medicines and healthcare products; investment holding; and property holding activities primarily in Malaysia. The company is involved in the wholesale and trade of herbal medicines and healthcare products, Chinese herbs, and tea and other beverages. It also engages in the multi-level direct marketing of health food, healthcare, wellness, and beauty products; manufacture and distribution of pharmaceutical products and health food; and provision of heat transmission and energy saving technology. In addition, the company leases machinery and equipment; operates as a licensed money lender and insurance agent, as well as importer, exporter, and commission agent; offers advertising services; imports and trades wine; provides research and laboratory services; and offers clinical services. It operates approximately 70 Hai-O Chain stores. Hai-O Enterprise Berhad was founded in 1975 and is headquartered in Klang, Malaysia. Board: Main Board FBMKLCI: NO Industry: TRADING SERVICES Sub-Sector: TRADING AND DISTRIBUTION Ownership: Corporate Owned (Local) Institutional Holders Investment Strategy % Shares Owned: 0.88% Portfolio Strategy: Lump Sum + Top Up # of Holders: 5 Portfolio Execution: Buy and Monitor Total Shares Held: 1,783,380 Momentum 3 Mo. Net Change: 19,300 Averaging Down Method: Dollar Cost/Value Averaging # New Positions: 0 Stop Loss # Closed Positions: 0 Basis for Buying & Selling: EPS EY % OSCILLATOR # Increased Positions: 1 Institutional Sponsorship # Reduced Positions: 0 Market Direction # Net Buyers: 1 Price CAGR Full History 5.84% 10-Y 21.89% 5-Y 11.28% -9.97% 3-Y -20.00% -10.00% 0.00% 10.00% 20.00% 30.00%

Key Performance Ratios Measures 2004/4/30 2005/4/30 2006/4/30 2007/4/30 2008/4/30 2009/4/30 2010/4/30 2011/4/30 2012/4/30 2013/4/30 5-Y Avg. 3-Y Avg. 10-Y GR. 5-Y GR. 3-Y GR. Sparkline Profitability Consistent and increasing ROE 4.82% 6.72% 11.39% 20.24% 34.53% 31.55% 33.76% 13.88% 15.34% 19.78% 19.77% 17.29% 12.68% -17.22% 17.72% (Pref. 15%) Consistent and increasing ROIC 6.39% 11.20% 15.00% 35.68% 84.90% 54.22% 66.09% 22.27% 28.54% 34.47% 35.35% 30.33% 15.21% -17.46% 21.84% (Pref. 15%) Increasing Net Profit Margin (Pref. 5.34% 7.40% 10.48% 16.16% 18.11% 17.44% 18.71% 18.49% 20.36% 23.93% 21.24% 21.79% 14.43% 7.17% 12.88% 10%) Healthy Cash Flow Consistent and increasing CROIC 6.02% 17.66% 13.61% 43.93% 90.53% 33.42% 77.95% 3.58% 47.08% 24.13% 33.08% 27.45% -0.33% -11.55% 95.47% (Pref. 15%) Increasing Free Cash Flow / Sales 3.61% 8.74% 6.92% 14.68% 14.38% 8.18% 16.70% 2.27% 25.15% 12.45% 14.41% 14.51% 2.84% 12.49% 85.03% (Pref. 5%) Consistently decreasing (or 92.55 65.80 62.58 49.28 22.10 15.59 16.53 66.15 61.15 50.53 50.37 56.77-5.64% 36.61% -13.47% negative) Cash Conversion Cycle Conservative Debt Increasing Debt Coverage Ratio (Pref. 150%) Increasing Quick Ratio (Pref. 100%) 75.97% 224.41% 218.27% 375.88% 1030.72% 182.97% 474.59% 30.91% 453.53% 248.53% 288.46% 271.79% -5.28% 5.67% 104.23% 127.41% 127.18% 136.30% 161.16% 194.20% 195.17% 283.93% 307.03% 278.33% 280.44% 279.96% 284.77% 11.12% 7.05% -4.53%

Growth Quality 600,000 Earnings 120,000 0.8 PAR-Adjusted EPS 500,000 100,000 0.7 400,000 80,000 0.6 0.5 300,000 60,000 0.4 200,000 40,000 0.3 100,000 20,000 0.2 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 EBIT Net Income Revenue 0 0.1 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 90,000 80,000 Cash Flow 100% 80% Growth Quality 60% 50% 70,000 60,000 50,000 60% 40% 20% 40% 30% 40,000 0% 20% 30,000 20,000 10,000 0-10,000 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Net Ops. Cash FCF Owner Earnings -20% -40% Revenue EBIT Net Income EPS Ops. Cash FCF Owner Earnings 3-Y 9.12% 20.52% 25.70% 26.21% 48.19% 94.15% 35.30% 5-Y -17.28% -10.70% -9.26% -12.85% -10.93% -4.79% -16.14% 10-Y 9.93% 24.18% 26.69% 20.20% 18.36% 17.67% 51.02% Quality 33% 54% 55% 45% 40% 25% 19% 10% 0%

Economic Moats Not available or no moat found Cost Advantage Not available or no moat found Switching Costs - Over 70 retail shops in Malaysia Network Effect Not available or no moat found Intangible Assets Not available or no moat found Efficient Scale Reference: http://lcchong.files.wordpress.com/2013/07/cp-v30-n2-9.pdf

Stock vs. Sector Peers Stock vs Sector Peers (Source: Reuters) ROE by Sector Peers (Source: EquitiesTracker) 80.00% 70.00% AMWAY 43.74 60.00% DKSH 26.74 50.00% 40.00% 30.00% ZHULIAN HAIO 15.34 25.92 20.00% BERNAS 14.86 10.00% 0.00% Debt to Equity - 5Y Avg EPS - 5Y Growth Net Profit Margin - 5Y Avg ROE - 5Y Avg Sales - 5Y Growth Company 6.22% 9.61% 13.43% 26.64% 4.81% Sector 71.51% 10.06% 9.23% 7.55% 7.77% HARISON JAYCORP CNI 9.85 8.45 1.26 0 5 10 15 20 25 30 35 40 45 50 Market Cap by Sector Peers (Source: EquitiesTracker) PE by Sector Peers (Source: EquitiesTracker) AMWAY 1,982.50 CNI 52.50 BERNAS 1,684.04 AMWAY 19.87 ZHULIAN 1,449.00 HAIO 16.07 DKSH 802.48 ZHULIAN 12.35 HAIO 545.91 DKSH 10.32 HARISON 212.28 BERNAS 10.23 CNI 75.60 HARISON 7.49 JAYCORP 67.94 JAYCORP 6.60 0 500 1,000 1,500 2,000 2,500 0 10 20 30 40 50 60

Market Timing Buy Criteria No. Method Description 1 EPS QoQ Growth The current quarter's EPS is up more than 15% from the same quarter the year before. 2 DCF Intrinsic Value Price is below Intrinsic Value 3 EY % Oscillator Price is below or around the price derived from EY% High 4 Market Direction Stock price breaks out of consolidation/dip on an uptrend. 5 Institutional sponsorship Company owner/directors, EPF, Khazanah, PNB and major fund institutions heavily buying Sell Criteria No. Method Description 1 EPS QoQ Growth Quarterly EPS drop for 3 consecutive months. 2 DCF Intrinsic Value Has the stock risen too far from its intrinsic value? 3 Market Direction Long term trend changed from bullish to bearish 4 Institutional sponsorship Company owner, EPF, Khazanah and PNB heavily selling. 5 EY % Oscillator Price is above or around the price derived from EY% Low 6 Fundamental Analysis Fundamental of business turns unattractive or bad - Declining cash flow - Serial charges - Serial acquirers - The CFO or Auditors leave the company - The bills aren t being paid - Changes in credit terms and account receivable - Found a better opportunity to replace this stock

EY% Valuation EY% High EY% Low M.O.S. R4Q-EPS FY14-EPS* FY15-EPS* 13.92% 8.59% 13% 0.23 0.25 0.30 Buy Under 1.78 1.90 2.27 Sell Above 2.52 2.70 3.23 * Estimations from Reuters or local analysts' reports EY% Price High R4Q FY14 FY15 Low Green Zone EY% 13.92% Green Zone Price($) 1.69 1.80 2.16 13.21% Buy Under 1.78 1.90 2.27 13% Trading Range 5.33% 9.30% Sell Above 2.52 2.70 3.23 13% Red Zone EY% 8.59% Red Zone Price($) 2.73 2.92 3.50 Low High

EPS QoQ Growth EPS QoQ Growth: 10.87% 0.09 0.08 0.081 0.07 0.06 0.055 0.05 0.046 0.052 0.051 0.04 0.03 0.02 0.01 0.00 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13

Insider Trading Last 3 months or last 30 insider transactions Transaction Date Securities Holder Type of transaction No of securities Price Transacted 18/07/2013 PHAN VAN DENH Acquired 247,662 2.60 18/07/2013 TAN KAI HEE Acquired 247,662 2.60 18/07/2013 TAN KENG KANG Acquired 247,662 2.60 18/07/2013 TAN KENG SONG Acquired 247,662 2.60 18/07/2013 TAN SIOW ENG Acquired 247,662 2.60 03/05/2013 PHAN VAN DENH Acquired 14,500 2.24 03/05/2013 TAN KAI HEE Acquired 14,500 2.24 03/05/2013 TAN KENG KANG Acquired 14,500 2.24 03/05/2013 TAN KENG SONG Acquired 14,500 2.24 03/05/2013 TAN SIOW ENG Acquired 14,500 2.24 02/05/2013 PHAN VAN DENH Acquired 17,400 2.28 02/05/2013 TAN KAI HEE Acquired 17,400 2.28 02/05/2013 TAN KENG KANG Acquired 17,400 2.28 02/05/2013 TAN KENG SONG Acquired 17,400 2.28 02/05/2013 TAN SIOW ENG Acquired 17,400 2.28 30/04/2013 PHAN VAN DENH Acquired 4,000 2.28 30/04/2013 TAN KAI HEE Acquired 4,000 2.28 30/04/2013 TAN KENG KANG Acquired 4,000 2.28 30/04/2013 TAN KENG SONG Acquired 4,000 2.28 30/04/2013 TAN SIOW ENG Acquired 4,000 2.28 29/04/2013 PHAN VAN DENH Acquired 5,600 2.30 29/04/2013 TAN KAI HEE Acquired 5,600 2.30 29/04/2013 TAN KENG KANG Acquired 5,600 2.30 29/04/2013 TAN KENG SONG Acquired 5,600 2.30 29/04/2013 TAN SIOW ENG Acquired 5,600 2.30 25/04/2013 PHAN VAN DENH Acquired 7,000 2.31 25/04/2013 TAN KAI HEE Acquired 7,000 2.31 25/04/2013 TAN KENG KANG Acquired 7,000 2.31 25/04/2013 TAN KENG SONG Acquired 7,000 2.31 25/04/2013 TAN SIOW ENG Acquired 7,000 2.31 24/04/2013 PHAN VAN DENH Acquired 4,000 2.32 24/04/2013 TAN KAI HEE Acquired 4,000 2.32 24/04/2013 TAN KENG KANG Acquired 4,000 2.32 24/04/2013 TAN KENG SONG Acquired 4,000 2.32 24/04/2013 TAN SIOW ENG Acquired 4,000 2.32

Notes Created Date Details Type Source Type 27/07/2013 http://klse.i3investor.com/blogs/rhb/32178.jsp The MLM division will focus on new product developments, effective product training for distributors, as well as growing its membership base. The wholesale segment, meanwhile, has secured exclusive agency rights for a number of Chinese medicated tonic products and will roll out advertising & promotion programs to boost sales. HAIO is also reexamining its product portfolio and refurbishing its existing outlets to strengthen the retail division. Outlook Analyst Report 23/07/2013 - MLM bullish once more. Hai-O (HAIO) s multi-level marketing (MLM) sales and profitability took a plunge in FY11, mainly due to slower membership growth after the Company tightened its rules and procedures relating to purchasing and other documentation in order to comply with industry regulations introduced in 2010. Consequently, MLM FY11 sales and EBIT plummeted to MYR125.2m and MYR22.3m, from RM418.1m and MYR75.3m respectively in FY10. It has since adopted more proactive measures to attract new members/distributors and improve its performance. The Company also shifted its focus from big-ticket items, such as water filters, to consumer-centric products like beauty and health products, of which sales have been largely `consistent and recurring in nature. - Enlarging member base. As HAIO has 140,000 registered members, of which ~80% are Bumiputera, it is planning to introduce new products that appeal to non-bumiputera users (ie Chinese and Indians) in order to capture the relatively untouched market. The Company will also continue to launch five to eight new products each year. http://klse.i3investor.com/blogs/rhb/33510.jsp Analysis;Growth Driver Analyst Report 04/07/2013 http://klse.i3investor.com/blogs/kenangaresearch/32561.jsp We are also positive on HAIO as we anticipate its MLM segment to deliver decent earnings growth via continuous efforts to enhance its product mix and expand new markets. 27/06/2013 http://klse.i3investor.com/blogs/kenangaresearch/32181.jsp Outlook We remain positive on Hai-O s prospect going forward as we anticipate its MLM segment to continue to deliver a decent earnings growth from a lower base through its continuous effort to enhance its product mix and expand new market channels through the recruitment of more new members. Change to Forecasts Due to the low base effect of its MLM segment, we have revised up our FY14E NP estimates by +5% to RM52.2m (from RM49.6m) on the back of a higher membership growth of 12% (vs. previous 6.6%). We are also introducing our FY15E earnings of RM57.1m, representing a 9.5% YoY growth. Analysis;Outlook Outlook Analyst Report Analyst Report